Godrej Properties, the fastest growing of India’s real estate majors, saw a surge of NRI (non-resident Indian) customers as well as a huge pick-up online sales during the COVID-19 lock-down.
Despite a harsh lock-down in place in India during most of the Apr-Jun quarter, the company managed to sell a whopping 2,130 homes during the three months, considerably higher than what was seen in the same quarter last year.
In all, the company sold homes worth Rs 1,531 cr, higher than the booking numbers seen in five out of the last eight quarters.
During the same period (Apr-Jun) last year Godrej properties had sold only properties worth Rs 897 cr.
DIGITAL + NRI
Mohit Malhotra, MD & CEO of the Mumbai-based real estate firm, said there were two highlights for the sales during the COVID-19 quarter:
“One is, we had a very large contribution from international markets in these sales, almost 50%. The second key highlight is that it’s almost 100% digitally done, because this was a period of extreme lock-down in the country and tactically people couldn’t go and see their sites. And that’s also one of the reasons why the share of international market was much higher than the domestic market.”
Despite the strong presence of NRI buyers, the average price of a property sold during the quarter was quite modest at Rs 71.88 lakhs.
On a square foot basis, the average price was Rs 6,094 per sq ft, which means that a medium-sized, 1,000 sq ft apartment was being sold for around Rs 65 lakh. Rates were higher in Mumbai, at Rs 7,375 per sq ft.
“Q1 sales were a very large amount was done in between Rs. 50 lakhs to Rs. 1 crore bucket, and many investors found value there,” Malhotra said, interacting with investors after the company’s Q1 results announcement.
He said buyers of properties in the Rs 50 lakhs to Rs 1 crore were more willing to commit without making a site visit, but not so for premium properties like RKS, where it is building premium residences at the site of RK Studios in Chembur.
“Some of the projects like RKS, we had many inquiries ready for closure, but the people wanted to see their site before they give the final check,” he said.
Moreover, he pointed out, site visits were more important for people who planned to live in the apartment once it is ready.
“..it’s largely a function of, if there is a very end-use project, then people would like to see the site before making a payment.”
The company recognizes a sale only if the customer pays at least 5% of the price of the flat or property as part of the digital transaction. It gives another 30-40 days to pay the remaining amount.
Perhaps not surprisingly, Bangalore led sales during the quarter, accounting for more than a third of the total area sold during the quarter (0.91 msft out of 2.51 msft), followed by NCR (0.59 msft), Pune (0.59 msft) and Mumbai region (0.32 msft).
One of the big incentives for sales during the quarter was the 10:90 scheme, under which customers can buy a property by paying only 10% of the price upfront, with the remaining collected as construction progresses.
However, the company did face several investor questions about the sustainability of the 10% down-payment scheme, given that it would also mean that Godrej Properties would not get access to the kind of funds it would under regular schemes. This could affect the company’s cash flow.
Moreover, chances of customers backing out, after booking the flat, are also higher if the upfront amount is only 10%.
However, Chairman Pirojsha Godrej said the 10:90 scheme was not the company’s preferred way to make sales, nor was the scheme available for all projects or for all times.
He admitted that the scheme would have some impact on Godrej Properties’ cash flows, but he added that with around Rs 2,000 cr of cash on hand, the company was well placed to incentivize sales through this scheme.
“We have, we think, more flexibility than other developers to find ways, to meet the customers’ expectations without affecting our own requirements,” he pointed out.
“One of the reasons we could immediately in April, launch the 10:90 scheme, and I think take a lot of market share was that we do have a liquidity position that allows it, whereas many of our peers, unfortunately, at this moment, don’t…what we are choosing to say is that what we actually care about is that we are in a very strong and stable position. And we are not taking any undue risks to the balance sheet. But that we are also saying that we are not giving up on growing during the year.
“So our expectation is that despite the severe shock this situation has presented, that we will grow booking value this year. it’s certainly not a perfect scheme by any means from the company’s perspective; it’s not something that we would like to use for the majority of our sales for the year. But I think it was a very important tool in our kit and well deployed to have used it the way we did in the first quarter. We are gradually starting to already phase it out and are not going to rely on it as much for sustenance sales,” he said.
Godrej also addressed the concern that delinquency/cancellation rates may be higher under such schemes. “I think that’s an absolutely fair risk that we are taking with our eyes open. And with the understanding that we do have 10% of the cash for the sale from the customer. If they choose to then cancel, we will forfeit that amount and would obviously also have the unit available for resale.”
In many cases, he pointed out, the true cost to the customer is actually more than the 10% if they have to pay stamp duties or other charges at the time of registration. Usually, when 10% of the price is paid, customers have to get the property registered.
“So with the total investment of 10% to 15%, that is not a thing that people walk away from easily…we have the protection of both having the cash they have already given us available, which would not be refundable and the ability to resell that apartment at that stage,” Godrej said.
Another factor that was flagged by investors was the high number of NRI buyers. Typically, NRI buyers are seen as speculators who book a flat with the intention of selling it later at a higher price.
NRI customers dominated sales up to around 2016, but their share in overall sales have been coming down since demonetization and the introduction of Real Estate Regulatory Authority cooled down property prices that were otherwise rising 10%-15% per year.
“I do think there are investors today who see the current state of the market, see that there are good deals on the table and are interested in playing the kind of upside opportunities that exist. And I think some amount of that is healthy to exist. We obviously don’t want that in any way overwhelm the sector or rapidly driving up prices and so on,” Godrej said.
“..frankly, our goal is, we don’t want the NRI sales to be at 50% forever, that’s probably not the most healthy dynamic. We actually want our sales from locals to go up significantly. But, I think it was a good thing in Q1 to fill an obvious gap. But we have seen a continued sustained demand in at least July from NRI. But again, certainly, and we are not suggesting that we expect for the full year to see 50% of sales from NRIs, nor would we consider that desirable…healthy coexistence of largely end users with some amount of investor demand is probably what’s best,” he added.
CEO Mohit Malhotra, however, said the ability of the company to switch quickly to a digital sales model during the lock-down was not an accident, though there certainly was an element of serendipity in it.
“The digitization of sales was a program which started almost year and a half ago, where we actually, me, our sales head and Rajendra, we all sat together and said, Is there a way we can think about selling homes online through our website? Almost like creating an amazon kind of thing for our own channel.
“So obviously, that sounded pretty weird and crazy idea that day. But we said, why don’t we just move towards that journey. And the first step of that was actually complete rehaul of our back-end process for sales, and the team did fantastic work on it. Actually the front end is pretty easy to design, the back end is very, very difficult to handle.
“So almost it took us a year to refine our processes, change our way of launches in sustenance sales. And the back end was completely ready. But it took us almost a year of work for the back end to be ready.
“Now obviously, we never thought the COVID will come in and suddenly we will be hit with this scenario. But somehow that work which was going on for year and a half made us very ready to handle this situation. Once the back end was ready, it was more about how to effectively use the front end,” he said.
Malhotra pointed out that the basic idea was to use an app as the front-end, but it could not be ready in time for the COVID-19 lock-down.
“Our big thinking was to launch a GPL customer app. So a lot of content was also ready for these projects which we could provide. So while we haven’t launched the app yet, all that digital content was ready for that, which we started using to sell,” he said.
“So this whole thing, even though the app was not launched, but to make this ready in the front-end, all credit goes to our sales team for making it happen. And I think after the fabulous sales which happened in March, it gave us a lot more confidence that this is actually something which is realistic and can be done,” he said, referring to the sale of around 500 apartments in the second half of March.
“So we took our mission that in Q1 we will definitely not give up despite a complete shutdown, which was going on. And we are quite happy with the kind of response we had seen. And actually, the acceptance level of digital channel is very, very high.”
Yet, he says, once things go back to normal, people will still prefer to conclude a purchase only after making a site visit. “I don’t think we will ever go away from a site visit to conclude the sale, but 90% of the processes could be now done digitally.”
Still, he says, the idea is to come out with the app in the next couple of months. “And then maybe even you can sit in your room, select the inventory and transact completely end-to-end through our app and buy the property.”